When Is the Texas Franchise Tax Due?
Navigate your Texas Franchise Tax obligations with clarity. This guide provides essential information for businesses to ensure timely compliance.
The Texas Franchise Tax is a significant financial obligation for many businesses operating within the state. It functions as a privilege tax, imposed on entities for the authorization to conduct business in Texas. Understanding this tax is an important part of managing financial compliance for businesses.
Entities Subject to the Tax
The Texas Franchise Tax applies to a wide range of taxable entities formed or organized in Texas, or those doing business within the state. This includes corporations, limited liability companies (LLCs), S corporations, partnerships, trusts, and professional associations. Banks, state limited banking associations, savings and loan associations, business associations, and joint ventures are also generally subject to this tax.
However, certain entities are generally not subject to the Texas Franchise Tax. Sole proprietorships and general partnerships composed solely of natural persons are typically exempt from this filing requirement. The concept of “doing business in Texas” extends the tax’s reach to out-of-state entities that have a substantial nexus or presence within the state, even if they are not formally chartered in Texas.
Key Deadlines and Reporting Periods
The annual Texas Franchise Tax report is typically due on May 15th each year. If May 15th falls on a weekend or a legal holiday, the due date shifts to the next business day. This standard deadline applies to most taxable entities. The report covers an accounting period that aligns with the entity’s federal tax year, typically ending on December 31st of the prior calendar year.
Newly formed or registered entities in Texas have specific due dates for their initial franchise tax report. This initial report is generally due on the first May 15th that occurs at least 13 months after the date the entity began business in Texas. For example, an entity starting business in January 2024 would have its initial report due May 15, 2025.
Entities that cease business operations or withdraw their registration from Texas are required to file a final franchise tax report. This report’s due date depends on the effective date of cessation or withdrawal, usually within 60 days.
Extensions are available for entities that require additional time to file their annual report. A six-month extension can typically be requested, pushing the due date from May 15th to November 15th. This extension request must be submitted on or before the original May 15th due date. While an extension grants more time to file the report, it does not extend the deadline for paying any tax due. Any estimated tax liability should still be paid by the original May 15th deadline to avoid penalties and interest.
Information Needed for Filing
Preparing the Texas Franchise Tax report requires specific financial and organizational information from the entity’s records. Businesses will need their total revenue figures, which serve as the starting point for calculating the tax base. Depending on the chosen calculation method, entities will also need detailed data on their cost of goods sold (COGS) or compensation paid.
Financial statements, such as the income statement and balance sheet, are primary sources for gathering this required data. Entities often refer to their federal income tax returns, as the Texas Franchise Tax calculation often begins with figures reported to the IRS. Maintaining accurate and well-organized financial records throughout the year simplifies the reporting process.
The Texas Comptroller of Public Accounts provides various official forms necessary for filing the franchise tax report. These include the main Franchise Tax Report (Form 05-102 or 05-163 for no tax due), and an Information Report (either a Public Information Report or an Ownership Information Report). These forms, along with specific schedules for various deductions or calculations, are available on the Comptroller’s website.
Filing the Report
Once all the necessary financial information has been compiled and the forms have been completed, the final step is submitting the Texas Franchise Tax report. The primary and most convenient method for submission is online through the Texas Comptroller’s WebFile system.
To file using WebFile, entities typically need their 11-digit Texas Taxpayer Number and a WebFile number, which is provided by the Comptroller. Alternatively, entities can submit their completed reports via mail to the Texas Comptroller of Public Accounts. Timely filing is essential to ensure compliance.